Lloyds lines up banks for rights issue - sources

By IBT Staff Reporter On 10/12/09 AT 7:53 AM

British bank Lloyds (LLOY.L) has lined up six investment banks to run a rights issue expected to be worth over 10 billion pounds ($15.9 billion) as the lender seeks to cut its reliance on the government, people familiar with the matter said on Monday.

The people said the banks have not yet been officially mandated by Britain's biggest retail lender but are already working on the deal and could be appointed imminently.

All banks involved declined to comment.

Lloyds Banking Group said last month it was assessing ways to exit or scale back its dependence on a costly government-sponsored scheme to insure against losses from toxic debts, a move analysts say could force it to raise over 20 billion pounds.

The bank, which is expected to consider a rights issue, asset sales and other measures, declined to comment on Monday.

Media speculation around Lloyds' plans has heated up in recent days, as it nears a conclusion on negotiations on the government's Asset Protection Scheme (APS) and wrangling -- via the Treasury -- with the European Commission over punitive measures to compensate for state aid.

Discussions are continuing, a Treasury official said.

A conclusion is expected within weeks, but sources familiar with the matter said on Monday that negotiations were ongoing and no move by the bank was imminent.

It is also still unclear whether regulators would allow Lloyds to pull out or significantly reduce its APS participation. The Treasury, which owns 43 percent of the bank, has yet to take a final decision on whether it would sign up for a Lloyds share issue, sources said.

Rival Barclays (BARC.L) is considering plans to clean up its balance sheet by spinning off a 4 billion pound portfolio of complex credit assets, according to the Financial Times.

Barclays, which declined to comment, last month sold $12.3 billion of credit market assets to a new vehicle backed by outside investors in an innovative scheme it said would give it more stable returns.

The assets in that fund will remain on balance sheet and Barclays remains exposed to losses due to a $12.6 billion loan to the fund, called Protium.

Barclays said at that time it would continue to reduce its balance sheet, and collateralised loan obligations (CLOs) were seen as among assets most likely to be sold.

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